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James Grant….Circa 1996
This is a great interview and in retrospect, a bit ominous given the subject and events sine then.
Interesting answer to a question on deposit insurance:
At the bottom of the cycle in 1933, the government introduced deposit insurance. It seemed to be a great thing for the country, a long-overdue reform, and, at last, the key to the stability of the financial system. But it was at this moment when it wasn’t needed. The banking system had already been liquidated. There were no bad assets to purge because nobody was making any loans.
It was supposed to encourage risk-taking, but it didn’t work. In an anti-capitalist environment, youre not going to be very successful in encouraging risk-taking by insuring deposits. That was the ironic timing of the reform. It would stand to reason that they’d take it off at the top of the cycle when the bad loans in the future were being made.
Notoriously, deposit insurance was increased from $40,000 to $100,000 in 1980. That was a fatal increase. That got the credit boom in the real estate industry rolling along. That got every two-bit S&L in the country involved in the commercial real estate business. That was the last big increase. Even the government now knows what it means to subsidize a moral hazard
Recently the FDIC increased deposit insurance to 250K and there is talk of making it permanent…… What is that quote about history?
Disclosure (“none” means no position):